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Global financial crisis has been a ‘blessing in disguise’ for community wind project development

A US federal laboratory suggests that ancillary benefits could be worth even more to community wind projects than the 30% investment tax credit or cash grant available under federal law.

“The global financial crisis of 2008/2009 has, in several respects, been a blessing in disguise for community wind project development in the United States,” explains ‘Revealing the Hidden Value that the Federal Investment Tax Credit and Treasury Cash Grant Provide To Community Wind Projects.’ The report was prepared by Mark Bolinger of the Lawrence Berkeley National Laboratory, with funding from the Department of Energy’s Office of Energy Efficiency & Renewable Energy.

“In addition to creating much-needed slack in the supply chain, the financial crisis spawned two major stimulus packages in the US that, in combination, have fundamentally reshaped the federal policy landscape for wind power in general, and for community wind projects in particular,” it states. Qualifying wind projects can, for a limited time, choose either a 30% investment tax credit (ITC) or a 30% cash grant in lieu of the production tax credit (PTC) that wind has historically received in the United States.

The report concludes that community wind, which has had more difficulty using the PTC than commercial wind farms, may benefit disproportionately the choice of federal incentives. On face value alone, the 30% ITC or cash grant (both of which depend on the size of the investment rather than on the quantity of power produced) “will be worth more than the PTC to many community wind projects, which on average may cost more or generate less than their commercial counterparts.”

“Just as importantly, however, and not to be overlooked, are a handful of ancillary benefits that accompany the 30% ITC and/or cash grant, but not the PTC,” it notes. “Many of these ancillary benefits (including relief from the alternative minimum tax, passive credit limitations, and certain PTC ‘haircuts’) circumvent barriers that have plagued community wind projects in the United States for years.”

Modeling of a hypothetical 10.5 MW community wind farm that receives US$40/MWh from electing the 30% cash grant over the PTC, shows that only US$15/MWh of the benefit is attributable to the 30% ITC or cash grant’s incremental face value relative to the PTC; the remaining US$25/MWh flows from just four of nine ancillary benefits analyzed in the report.

“Passive investors have not played a significant role in most community wind projects built in the United States to date, perhaps precisely because of the negative impact of the passive credit limitations on the value of the PTC,” it concludes. “But if community wind is going to penetrate the broader wind market to any significant degree going forward, it may need to increasingly look to passive investors to finance that expansion.”

‘Community wind’ refers to projects that are owned locally and consist of utility-scale turbines (100 kW or larger). Though relatively common in European countries such as Denmark and Germany, community wind is “still very much a niche market in the United States, accounting for just 2% of total installed wind capacity at the end of 2008" (a contribution that has remained constant since 2004).
 

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